Many of you may be aware that current account holders have never earned a rate of interest for money in bank. This is prima facie because, the present regulations (of the Reserve Bank of India) prohibit offering a rate of interest on current accounts. Thus very often corporate treasuries and other smaller business organisations in order to earn a return on investment in the intermediate prefer to park their short-term requirement of funds in investment avenues such liquid fund, ultra-short term funds or shorter tenure bank fixed deposits (FDs) - which at present have a minimum tenure of 7 days. But now if the RBI honours the request of country’s largest bank – State Bank of India (SBI), it could leave open an option for many to invest in a FD with a minimum tenure of even 3 days.

It is noteworthy that recently Mr Pratip Chaudhari – Chairman of SBI, requested RBI to reduce the minimum tenure for FDs to 3 days from 7 days at present. Earlier in the year, SBI launched an "unfixed deposit scheme", which is yet running successfully providing liquidity and high returns to investors. Under the said scheme, the bank initially offered a rate of interest of 8.5% p.a., which is now reduced to 6.5% p.a. The scheme enables one to withdraw the funds any time after 7 days and interest is paid at contracted rate upto the date of withdrawal. It means no penalty is charged on premature withdrawal of funds.

We are of the view that, if indeed minimum tenure of FDs is reduced to 3 days (from 7 days at present) it would be a good move facilitating treasuries of several business organisations to park their short-term requirements. Moreover, individual investors too may evince interest if the minimum tenure of FDs is further reduce, provided the rate of interest offered is higher than that in a savings bank account. Thus this could enable banks to mobilise more resources, thereby pushing the deposit growth rate higher than at present. Also, the move could be appropriate in an uncertain economic environment that exists at present where the globally economy is paining through debt crisis and fiscal deficit problems.
 

But it is seems unlikely that banking regulator will honour the request of the country’s largest bank – SBI, by simply pointing out to the present regulations in force.

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